FedEx Indicted for Shipping Illegal Pharmacies' Drugs

FedEx Corp. was accused in a federal indictment of delivering prescription pain pills, sedatives, anti-anxiety drugs and other controlled substances for illegal Internet pharmacies. A conviction could be “material,” the company said today in a regulatory filing.

The operator of the world’s largest cargo airline was indicted on 15 counts of conspiracy to distribute controlled substances and misbranded drugs and drug trafficking that carry a potential fine of twice the gains from the illegal conduct, alleged to be at least $820 million for it and co-conspirators. FedEx delivered drugs to Internet pharmacies that supplied pills to customers who filled out online questionnaires and were never examined by doctors, knowing these practices violated federal and state drug laws, according to the federal indictment.

The company vowed to fight the charges, saying it can’t be responsible for the contents of the 10 million packages it transports daily and that policing customers would violate their privacy.

“FedEx is innocent of the charges,” Patrick Fitzgerald, a spokesman for the Memphis, Tennessee-based company, said yesterday in an e-mailed statement. “We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”

Yesterday’s indictment in federal court in San Francisco comes more than a year after United Parcel Service Inc. agreed to forfeit $40 million in payments it received from illicit online pharmacies under a non-prosecution agreement with the U.S. Justice Department.

Business Tenet

FedEx said last year that an indictment or prosecution in the case would threaten a basic tenet of its shipping business - - not opening packages. Revenue from online pharmaceutical shipments is a small percentage of total sales, the company previously said. FedEx reported $44.3 billion in revenue for fiscal 2013.

If convicted, the company could face fines, penalties, forfeiture and compliance conditions, it said today in the regulatory filing.

“Given the early stage of this proceeding, we cannot estimate the amount or range of loss, if any; however, it is reasonably possible that it could be material if we are convicted,” according to the filing with the U.S. Securities and Exchange Commission.

Pharmacy List

FedEx said yesterday it repeatedly asked the government for a list of illegal pharmacies so it would know which ones not to do business with. The U.S. never gave it such a list, it said.

The company knew it was delivering drugs to dealers and addicts, with couriers in Kentucky, Tennessee and Virginia expressing concerns circulated to senior managers that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills, according to the indictment. Some delivery addresses were parking lots or vacant homes, prosecutors said.

“This indictment highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior,” U.S. Attorney Melinda Haag in San Francisco said in a statement.

Arrests, Shutdowns

The illegal deliveries began in 2000, Haag said, and FedEx continued to do business with one Internet pharmacy whose manager had been arrested for violating drug laws. She said the company also served a fulfillment pharmacy that supplied Internet pharmacies that were shut by law enforcement, with their owners and doctors convicted of illegally distributing drugs.

UPS, in its March 2013 agreement, acknowledged doing business with online pharmacies even after it learned they were illegally distributing controlled substances without requiring valid prescriptions.

UPS, based in Atlanta, also agreed to establish a compliance program designed to ensure such customers won’t be able to use its services to illegally distribute drugs.

Under the U.S. Controlled Substances Act, a shipping or freight company is allowed to possess and transport drugs “in the lawful and usual course of its business” without registering with drug enforcement authorities. The law regulates the manufacture and distribution of narcotics and certain other drugs and chemicals used in the illegal production of controlled substances.

Consumers are turning to online pharmacies because of the convenience and privacy of purchasing medicines there, and as insurance companies encourage home delivery for long-term medications, according to the U.S. Food and Drug Administration website.

The case is U.S. v. FedEx Corp., 14-cr-00380, U.S. District Court, Northern District of California (San Francisco).

--With assistance from Michael Sasso in Atlanta and Sophia Pearson in federal court in Philadelphia.

To contact the reporters on this story: Karen Gullo in federal court in San Francisco at kgullo@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Ed Dufner at edufner@bloomberg.net Joe Schneider